Thailand WT/TPR/S/191 
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I. ECONOMIC ENVIRONMENT 
(1) INTRODUCTION  
1. Since its previous Trade Policy Review in 2003, despite a series of negative shocks, 
Thailand's real GDP has grown at an average annual rate of 5.7% (with inflation averaging a modest 
3.4%).1  This is largely the result of strong growth in exports and domestic consumption, although the 
latter's growth has been slowing;  by contrast, grow th of private investment remained relatively weak, 
especially in 2006.2  Concurrently, GDP per capita rose from US$2,007 in 2002 to US$3,159 in 2006, 
slightly higher than its pre- (Asian) crisis leve l of US$3,032 (1996).  Thailand maintained its position 
virtually unchanged in the medium UN human development category of countries, ranking 74th out of 
177 in 2004.3  Between 1990 and 2004, average income pove rty levels remained stable with around 
2% of the population living below the US$1 a day poverty line.4  Income inequality (as measured by 
the Gini coefficient)5 dropped slightly (from 0.525 in  2000 to 0.499 in 2004). 
2. Although poverty remains significant in poorer regions and rural areas, Thailand surpassed its 
poverty reduction targets under the Millennium Devel opment Goals (MDG) as we ll as the targets set 
under its 9th National Economic and Soci al Development Plan in 20036;  with the support of UNDP 
and the World Bank, it adopted the MDG-plus targets in 2004.7  However, Thailand's competitiveness 
seems to have declined as a result of, inter alia,  exchange rate appreciation, and risks of political 
instability and uncertainty.8  Major impediments to Thailand's growth, relatively slow growth in 
private investment, infrastructure deficiencies (mainly outside metropolitan areas) and burdensome government regulation (includi ng price controls) remain.
9  Although the authorities expect the Thai 
economy to maintain its growth mo mentum, exogenous factors, including weather, international oil 
prices, and a slowdown in international and domestic demand as well as of private investment, may pose challenges to sustained growth.  Tax reform h as been undertaken to raise tax collection, deal 
with tax evasion, and reduce the cost of doing bus iness in Thailand.  Privatization has progressed 
slowly. 
                                                     
 
1 Figure for average of GDP growth 2003-06, based on data from the National Economic and Social 
Development Board  GDP 2007Q1 statistics, 4 June 2007. 
2 The weakness of investment in Thailand since the Asian crisis has been considerable and prolonged.  
While investment has grown, it remains below pre-crisis levels (i.e. 40% of GDP during 1990-96) (IMF, 2007).  
3 UNDP (2003) and (2006). 
4 Period averages for the population living below the US$2 poverty line registered a drop from 32.5% 
to 25.2%.  UNDP (2003) and (2006). 
5 The Gini coefficient measures the inequality of inco me distribution within a country.  It varies from 
zero, which indicates perfect equality, with every hous ehold earning exactly the same, to 1, which implies 
absolute inequality, with a single household earning  a country's entire income (World Bank, 2005b). 
 6 World Bank (2003). 
7 Having already reached the international MDG target of halvin g the proportion of people living in 
poverty between 1990 and 2015, Thailand has set an MDG-plus target of reducing the proportion of people in poverty by 2009.  If successful, this will represent a stunning four-fifths reduction in p overty since 1990.  MDG-
plus targets have also been set for education, h ealth, gender equality, and the environment (UNDP online 
information.  Viewed at:  http ://www.undp.or.th/mdg/index.html). 
8 According to the 2007 edition of the World Competitiveness Yearbook , Thailand's ranking fell sharply 
from 29th in 2006 to 33rd (out of 55) in 2007 (The Nation , "Thailand's competitiveness ranking slips", 
10 May 2007.  Viewed at:  h ttp://www.nationmultimedia.com/2007/05/ 10/business/business_30033809.php 
[18 May 2007]).  Furthermore, according to the World Economic Forum Growth Competitiveness Index, 
Thailand moved from the 33rd (out of 117 countries) in 2005 to 35th (out of 125) in 2006.  The Index comprises 
the technology index, the public institutions index, and the macroeconomic environment index.  For further 
information, see WEF online information.  Viewed  at:  http://www.weforum.org/en/initiatives/gcp/ 
Global%20Competitiveness%20Report/index.htm [18 May 2007].  
9 World Bank (2007). WT/TPR/S/191 Trade Policy Review 
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3. The economy has become more outward-oriented, with trade in goods and non-factor services 
rising from 124.6% of GDP in 2003 to 143.5% in 2006, and inward foreign direct investment increasing by 86.4% during 2003-06 (Tables I.1 and I.4).
10  Nevertheless, Thailand's degree of 
integration into the global econom y still seems to be fairly low.11 
Table I.1 
Selected macroeconom ic indicators, 2002-06  
 2002 2003 2004 2005 2006a 
National accounts (Percentage change) 
Real GDP (at 1988 prices) 5.3 7.1 6.3 4.5 5.0 
Consumption 4.8 5.9 6.1 5.5 3.2 
Private consumption 5.4 6.5 6.2 4.3 3.1 
Government consumption 0.7 2.5 5.6 13.7 3.4 
Gross fixed capital formation 6.5 12.1 13.2 11.1 4.0 
Exports of goods and non-factor services 12.0 7.1 9.6 4.3 8.6 
Imports of goods and non-factor services 13.7 8.4 13.4 9.3 1.6 
XGS/GDP (%) (at current market prices) 64.2 65.7 70.7 73.8 73.7 
MGS/GDP (%) (at current market prices) 57.5 58.9 65.8 75.1 69.8 
Unemployment rate (%) 2.4 2.2 2.1 1.8 1.5 
Productivity (Percentage change) 
Labour productivity 2.3  4.7  3.6  2.9  3.8  
Capital productivity 3.9  5.1  3.5  1.4  1.5  
Total factor productivity 3.4  5.1  3.6  2.0  2.3  
Industrial capacity utilizati on (%) 64.4 69.8 71.5 72.1 74.2 
Prices and interest rates (Per cent) 
Inflation (CPI, % change) 0.6 1.8 2.8 4.5 4.7 
Core inflation (% change) 0.4 0.2 0.4 1.6 2.3 
Interbank lending rate (overnight averag e, end of period) 1.59 1.03 1.79 3.80 4.85 
Bank repurchase rate (14-day average, end-of-period) 1.75 1.25 1.90 3.94 5.00 
Bank repurchase rate (1-day average, end-of-period) 1.52 1.01 1.79 3.85 4.89 
Commercial bank minimum lending rate (largest 5, end-of-
period) 6.50-7.00 5.50-5.75 5.50-5.75 6.50-6.75 7.50-8.00 
Money credit (end period)b (Percentage change) 
Narrow money 15.6 14.7 10.7 7.8 1.9 
Broad money 1.3 6.1 5.7 6.3 6.2 
Credit to private sector  7.2 2.3 8.8 6.2 4.2 
Exchange rate      
Baht/US$ (annual average) 43.00  41.53  40.27  40.27  37.93  
Real effective exchange rate (% change) 2.0  -2.1  -0.3  1.6  8.1  
Nominal effective exchange rate (% change) 2.5  -2.4  -1.0  -0.6  5.7  
 (Per cent of GDP, unless otherwise indicated) 
Central government balance (y ear ending 30 September)      
Net operating balance -4.3  3.8  2.5  3.4  4.4  
Revenue 17.5  20.1  20.2  20.8  20.6  
Tax revenue 14.5  15.8  16.3  17.0  17.2  
Expenditure 21.8  16.2  17.6  17.4  16.3  
Government total debt (end-period, cale ndar year) 31.0  27.6  27.9  26.2  25.0  
Domestic debt  23.7  21.6  23.2  22.8  23.0  
Table I.1 (cont'd) 
                                                      
10 Figures based on data from the National Economic and Social Development Board GDP 2007Q1 
statistics, 4 June 2007. 
11 For example, according to the 2005 Globalization Index, Thailand ranks 46th overall (out of 
62 countries) (A.T. Kearney, 2005). Thailand WT/TPR/S/191 
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 2002 2003 2004 2005 2006a 
Saving and investment       
Gross national savings 29.3  30.5  31.0  29.5  ..  
Public sector 7.1  7.7  7.3  7.1  ..  
Gross domestic investment 23.8  25.0  26.8  31.5  ..  
Public sector 6.9  6.6  6.6  7.2  ..  
Savings-investment gap 5.5  5.6  4.2  -2.0  ..  
External sector      
Current account balance  3.7  3.3  1.7  -4.4  1.5  
Net merchandise trade  2.2  2.6  0.9  -4.8  1.0  
Merchandise exports 52.1  54.6  58.9  62.1  62.0  
Merchandise imports 49.9  52.0  58.0  66.8  61.0  
Services balance 4.0  3.5  3.3  2.7  2.3  
Capital account -1.5  -3.4  2.3  7.2  4.3  
Direct investment 2.5  3.2  3.6  4.8  4.4  
Balance of payments  3.3  0.0  3.5  3.1  6.1  
Terms of trade 92.1  94.2  95.9  96.7  95.6  
Merchandise exports (% change) 1.3  13.9  18.2  15.1  10.2  
Merchandise imports (% change) 1.0  13.2  22.3  25.9  0.7  
Service exports (% change) 14.4  -1.2  17.1  6.1  12.4  
Service imports (% change) 17.4  -0.3  24.4  12.0  18.7  
International reservesc (US$ billion, end-period) 38.9  42.1  49.8  52.1  67.0  
in months of imports 7.3  6.8  7.0  5.8  6.6  
Foreign exchange reserves (US$ billion, end-period) 38. 1  41.0  48.5  50.5  65.1  
Total external debt (US$ billion;  en d-period) 59.5  51.8  51.3  52.0  59.9  
Debt service ratio  19.6  16.0  8.5  10.8  8.3  
.. Not available. 
a Provisional.  
b Narrow money refers to currency outside depository corporati ons and demand deposits at deposito ry corporations.  Broad money 
refers to narrow money plus other deposits at deposito ry corporations and securities other than shares. 
c Including foreign exchange reserves, gold, SDRs (Sp ecial Drawing Rights), and Reserve Position in IMF. 
Source:  Bank of Thailand;  Ministry of Financ e and data provided by the authorities. 
(2) RECENT ECONOMIC DEVELOPMENTS  
4. During the period under review, annual real GDP growth averaged 5.7% (2003-06), but it is 
expected to slow to 4.3 % in 2007.  Growth has b een fuelled by growth in  domestic consumption and 
exports.  This is reflected in the growth of manuf acturing, which has averaged 7.5% over the period 
(Table I.2).  However, since 2005 a confluence of fact ors such as the higher oil prices, slower growth 
in the economies of its major trading partners, the downward electronic cycle, the devastating 
tsunami, a prolonged drought, political uncertainty, and continued unrest in the southern part of the 
country, have led to a slowdown in activity;  these developments had an adve rse effect on consumer 
and investor confidence as well as export growth.  Furthermore, the slowdown in GDP growth in 
2007 is in part because the easy gains from incr eased utilization of excess capacity have been 
exhausted12, and in part because new capacity is expanding slowly as investor confidence is low.  This 
may lead to growth and inflation concerns.13 
                                                      
12 According to Bank of Thailand data, between 2002 and 2006 total industrial capacity utilization rose 
from 64.4% to 74.2%.  Sectors with capacity utilization of over 90% were paper, petrochemical, and integrated 
circuits industries. 
13 World Bank (2007). WT/TPR/S/191 Trade Policy Review 
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5. Overall unemployment declined from 2.4% in  2002 to around 1.5% in 2006 as a result of 
increased employment in the services sector (Table I.2).14  Average total factor productivity (TFP) 
growth increased from 1.6% (1977-96) to 2.1% (1999-04).15  The gains were initially due to labour 
shifting from agriculture to higher productivity ma nufacturing rather than improvements within the 
industrial sector.  Furthermore, rapid employment  growth in manufacturing is unlikely;  thus, 
sustained growth in the future would require a si gnificant increase in investment or improved TFP.  
The latter is partly affected by the slowdown in domestic demand and existing price controls 
(Chapter III), which constitute disincentives to firms to improve their efficiency and innovate.  The 
10th National Economic and Social Development Plan  (Chapter II) emphasizes the need to move 
towards a knowledge-based economy that w ould increase TFP growth and thus export 
competitiveness. 
6. Services have remained the largest contribut or to GDP, despite a drop of their share 
(Table I.2);  their lacklustre performance in 2005 and 2006 is attributed to the fall in tourism.  
Table I.2 
Basic economic and social indicators, 2002-06  
 2002 2003 2004 2005 2006 
Real GDP at market prices (baht billion, 1988 pr ices) 3,237.0  3,468.2  3, 685.9  3,851.3  4,044.6  
Current GDP at market price (baht billion) 5,450.6  5,917.4  6,489.8  7,087.7  7,816.5  
Current GDP at market price (US$ billion) 126.7  142.5  161.2  176.0  206.1  
GDP per capita at current market price (baht) 86,322.2  92,960.0  101,092.7  109,440.0  119,823.9  
GDP per capita at current market price (US$) 2,007.3  2,238.4  2,510.4  2,717.7  3,159.2  
 (Annual percentage change) 
GDP by economic activity at constant 1988 prices      
Agriculture, forestry, and fishing 0.7 12.7 -2.4 -3.2 4.8 
Mining and quarrying 11.0 6.8 5.5 8.8 3.6 
Manufacturing 7.1 10.7 8.2 5.2 6.1 
Electricity, gas, and water 6.0 4.6 6.4 5.3 5.1 
Construction 5.4 2.8 7.2 6.0 4.9 
Services 4.6 3.5 6.7 5.2 4.2 
Wholesale and retail trade, repair of vehicles, and 
household goods 2.2 2.9 4.6 4.2 2.7 
Hotels and restaurants 4.5 -4.2 12.2 2.1 10.5 
Transport, storage, and communication 6.8 2.9 7.4 4.8 5.8 
Financial intermediation 11.6 16.8 12.4 7.5 2.9 
Real estate, renting and busine ss activities 4.9 4. 9 6.6 4.8 2.0 
Public administration and defence, compulsory social 
security 6.5 3.0 3.0 6.1 3.7 
Education 1.0 1.1 3.4 8.4 2.9 
Health and social work -0.3 -3.8 2.1 12.3 8.8 
Other community, social and personal service 
activity 8.1 11.8 12.4 6.6 2.2 
Other 0.3 2.9 3.6 0.2 -2.3 
Table I.2 (cont'd)  
                                                      
14 Data provided by the authorities and contained at  the National Statistical Office (NSO) Labour Force 
Survey;  this figure could not be verified as most of the site is in Thai language only.  According to the BOT and 
IMF, respectively, this indicator is at 1.4% and 1.6% for 2006.   
15 World Bank (2005b). Thailand WT/TPR/S/191 
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 2002 2003 2004 2005 2006 
 (Per cent) 
Share of main sectors in current GDP      
Agriculture, forestry, and fishing 9.4 10.4 10.3 10.2 10.7 
Mining and quarrying 2.5 2.6 2.7 3.1 3.3 
Manufacturing 33.7 34.8 34.5 34.8 35.0 
Electricity, gas, and water 3.2 3.2 3.2 3.1 3.2 
Construction 3.0 3.0 3.0 3.1 3.1 
Services 48.1 46.0 46.3 45.7 44.7 
Wholesale and retail trade, repair of vehicles, and 
household goods 15.9 15.0 14.9 14.6 14.3 
Hotels and restaurants 5.7 5.1 5.1 4.9 5.0 
Transport, storage, and communication 8.2 7.7 7.6 7.4 7.3 
Financial intermediation 3.1 3.4 3.6 3.7 3.6 
Real estate, renting and busine ss activities 3.2 3. 0 2.9 2.8 2.6 
Public administration and defence, compulsory social 
security 4.5 4.4 4.6 4.6 4.5 
Education 3.9 3.7 3.8 3.9 3.8 
Health and social work 2.0 1.8 1.8 1.9 1.9 
Other community, social and personal service 
activity 1.6 1.6 1.8 1.8 1.6 
Other 0.1 0.1 0.1 0.1 0.1 
Share of sector in total employment      
Agriculture, hunting, and fishery 42.5 41.0 39.3 38.6 39.7 
Mining and quarrying 0.1 0.1 0.1 0.2 0.2 
Manufacturing 15.3 15.7 15.8 15.8 15.4 
Electricity, gas, and water 0.3 0.3 0.3 0.3 0.3 
Construction 5.4 5.6 6.0 6.0 6.0 
Services 36.4 37.4 38.5 39.0 38.4 
Wholesale and retail trade, repair of vehicles, and 
household goods 15.0 15.4 16.0 15.8 15.5 
Hotels and restaurants 6.2 6.3 6.5 6.7 6.4 
Transport, storage, and communication 3.1 3.1 3.2 3.1 3.0 
Financial intermediation 0.8 0.9 0.9 0.9 1.0 
Real estate, renting and busine ss activities 1.5 1. 6 1.8 1.8 1.9 
Public administration and defence, compulsory social 
security 2.9 2.8 2.9 3.1 3.2 
Education 2.9 2.9 3.0 3.0 2.9 
Health and social work 1.4 1.5 1.6 1.7 1.7 
Other community, social and personal service 
activity 1.9 2.0 2.1 2.1 2.1 
Other 0.8 0.8 0.8 0.8 0.8 
Memorandum      
Life expectancy at birth (years) 69.1 70.0 70.3 73.6 .. 
Infant mortality rate (per 1, 000 live births) 24.0 19.0 18.0 11.3 .. 
Adult literacy rate (%) 92.6 92.6 92.6 93.5 .. 
Enrolment ratio (net) in education      
Primary (%) 104.8 104.5 104.2 104.2 103.5 
Secondary (%) 71.1 71.8 78.6 80.0 81.3 
.. Not available. 
Source:  Bank of Thailand (2006), Economic and Financial Statistics, Fourth Quarter;   National Statistics Office;  UNDP, 
Human Development Report  (various issues);  and data provided by the authorities. WT/TPR/S/191 Trade Policy Review 
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7. Thailand's marked reduction in poverty levels (section (1)) allowed it to surpass its targets 
under the Millennium Development Goals and its 9th Plan in 2003.16  Poverty alleviation has been due 
to a rise in real incomes in the agri culture sector (80% of the poor are in this sector), which have been 
growing at 5% per annum since 2001.  In addition,  unemployment in agriculture fell by more than 
70% between 2001 and 2005.17  To alleviate the high incidence of poverty in the north-east of the 
country, where the majority of the poor live, targ eted action included a substantial package of farm, 
village, and small-enterprise-oriented progra mmes designed to expand productive employment 
opportunities for low-income groups as well as a low- cost universal health scheme to cover the 
uninsured.  Additionally, on 1 Ja nuary 2004, an unemployment secu rity fund was introduced to 
provide a safety net for those laid off, and action was intensified through a "war on poverty" campaign 
aimed at eradicating poverty within six years, through registration of vulnerable people with the 
National Poverty Eradication Centre.18  Other social indicators, such as infant mortality and life 
expectancy, have also improved. 
8. During the period under review, inflation has been  on an upward trend (Table I.1).  Between 
2003 and 2004, Thailand had a relativ ely benign inflationary environment, enabling the authorities to 
keep real interest rates low so as to encourage c onsumption and investment and thus foster growth.  
Retail oil prices were subsidized (Chapters III and IV) and there was excess capacity in the manufacturing sector.  The combined effect of rem oving the oil price subsidy in 2004, which resulted 
in a 40% rise in retail petrol prices in 2005 (over 2003), and the decline in excess capacity to 80% for 
many industries
19, resulted in headline inflation rising to 4.7% in 2006.  Core inflation averaged 2.3% 
in 2006, well within the target range  of zero to 3.5% (section (3)(i)(a)).20  Subsequently, a slowdown 
in domestic demand coupled with a reduction in  oil prices has reduced inflationary pressure. 
(3) MAIN MACROECONOMIC POLICY DEVELOPMENTS  
(i) Monetary and exchange rate policy 
(a) Monetary policy 
9. Monetary policy is the responsibility of the Ba nk of Thailand (BOT) (Chapter IV).  Despite 
some weaknesses in the current legal framework (i.e. the Minister of Finance is given the power to 
supervise BOT activities), the BOT is able to mainta in operational independence in the formulation of 
monetary policy through an inde pendent and open decision-making process, including the Monetary 
Policy Committee (MPC)21, and mechanisms to ensure accountability  and transparency.  According to 
the authorities, changes in the monetary policy stance and the operational framework are regularly 
explained to the public and announced in a timely manner.  
                                                      
 16 World Bank (2003). 
 17 World Bank (2006c). 
 18 World Bank (2004b). 
 19 World Bank (2005b). 
20 Core inflation is defined as headline inflation less raw food and energy, because of their price 
volatility. 
21 The Monetary Policy Committee (MPC), formed in April 2000, under the name of Monetary Policy 
Board is appointed by the Governor of the Bank of Thailand;  it comprises the Governor, two deputy governors, and four external members, two of them also directors of the BOT's Co urt of Directors.  The MPC meets 
eight times a year to set monetary policy deemed approp riate to economic conditions and forecasts.  It also 
approves the Bank's quarterly Inflation Report.  This helps the MPC to explain its monetary policy decisions to the public by providing information on  economic conditions as well as for ecasts for eight quarters ahead.  The 
amendment of the Central Bank Act, which is before parliament would provide greater autonomy and 
accountability to the Bank  of Thailand.  For further details about th e MPC, see BOT online information. Viewed 
at:  http://www.bot.or.th.bothomepage/BankAtWork/mone tary&fxpolicies/index_eng_i.asp [11 June 2007]. Thailand WT/TPR/S/191 
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10. The main objective of Thai monetary policy is to  achieve price stability.  The monetary target 
adopted with the floating of the currency in Ju ly 1997 was replaced in May 2000 with inflation 
targeting, which the authorities considered more  effective, since the money supply and output 
relationship had become less stable.  A quarterly aver age core inflation rate of zero to 3.5% year-on-
year is set as the policy target:  the authorities co nsider the target range appropriate to maintain 
inflation in line with Thailand's trading partne rs, and thereby to preserve export competitiveness and 
currency stability, and to promote growth.  The main policy instrument to achieve the inflation target 
is the BOT's 1-day repurchase (repo) rate22, currently set at 3.5% per annum.  The inflation-targeting 
policy framework, together with the managed floa ting exchange rate regime are seen by the 
authorities as providing sufficient flexibility to resp ond quickly to changing domestic and external 
developments while ensuring long-run price stab ility conducive to sustainable economic growth. 
11. Between 2003 and 2004, the BOT pursued an accommodative monetary policy to encourage 
demand and foster economic growth;  this was f acilitated by mild inflationary pressure.  The 
dismantling of the oil subsidy (section (2)), rising commodity prices, and increasing capacity 
utilization resulted in rising inflationary pressure, prompting the BOT to tighten monetary policy.  
Between 2004 and 2006,  the BOT increased the 14-day repo rate from 1.25% to 5%, primarily to 
contain inflationary pressure.  However, with infl ationary pressure receding and the need to spur 
growth as from January 2007, the BOT has eased monetary policy, by reducing the 1-day repo rate five times (totalling 1.75 percentage points), from 5% to 3.25% (in July 2007).
23 
(b) Exchange rate policy 
12. The Government is committed to a flexible market-determined exchange rate;  the BOT 
intervenes in the foreign exchange market only when appropriate to smooth out fluctuations. 
Intervention is believed to help limit the extent of exchange-rate overshoot ing, thus avoiding the 
disruptive impact and the need for costly real economic adjustment.    
13. The continuing strength of capital inflows a nd the virtually continuous current account 
surplus (reflecting national saving higher than gr oss domestic investment) have exerted upward 
pressure on the baht, which has eroded the export co mpetitiveness of the labour-intensive industries 
(such as textiles, clothing, and footwear) that have been unable to improve their productivity 
sufficiently to offset the baht's appreciation a nd withstand increased competition from China and other 
countries in the region.24  During the period under review, the Thai currency appreciated by around 
9% against the U.S. dollar.25  Furthermore, both the real effec tive exchange rate and the nominal 
effective exchange rate, constructed from  bilateral exchange rates of the baht vis-à-vis  Thailand's 
21 major trading partners and comp etitors, have been appreciating si nce 2004.  Between January 2004 
and December 2006, the real effective exchange ra te appreciated by 12.7%, while the nominal rate 
                                                      
22 The 14-day repurchase rate was replaced as th e policy rate by the 1- day repurchase rate from 
17 January 2007. 
23 BOT online information.  Viewed at:  http://www.bot.or.th/bothomepage/BankAtWork/monetary& 
fxpolicies/index_eng_i.asp [11 June 2007];  and World Bank (2007). 
24 By contrast, many of Thailand's higher-value export industries (such as automobiles, automobile 
components, and electronics) contain a significant proportion of imported components that have become 
cheaper as a result of the baht's appreciation, thereby mi tigating the latter's effect on their competitiveness.  IMF 
Public Information Notice (PIN) No. 07/39, 23 March 2007.  Viewed at:  http://www.imf.org/external/np/ 
sec/pn/2007/pn0739.htm. 
25 The appreciation rate is based on an average annu al exchange rate for the baht;  the appreciation 
would have been higher if point-to-point exchange rates were considered. WT/TPR/S/191 Trade Policy Review 
Page 8 
 
 
appreciated by 6.9%.26  In 2006, the baht appreciated significantly compared with other regional 
currencies to a nine-year high of B 35.1/US$1, prompting the BOT to implement an unremunerated reserve requirement (URR) measure on shor t-term capital inflows on 18 December 2006.
27  T h i s  
measure, which resulted in differe nt exchange rates for the offshore and onshore markets, has been 
relaxed progressively since 1 February 2007.28 
(ii) Fiscal policy 
14. During the period under review, Thailand's fisc al position has remained strong, underpinned 
by robust growth in tax revenues;  the fiscal su rplus (based on net operating balance figures) rose 
from 3.8% of GDP in 2003 to 4.4% in 2006 (Table I.1).29  Although the share of import duties to total 
tax revenue has declined (Chapter III), this has b een more than offset by increased corporate and 
value-added tax receipts as a result of economic  growth and improved tax administration and 
collection.  Net revenues from extra budgetary funds and the social security fund also contributed to 
the fiscal surplus.30  In 2005,  four fiscal targets were set:  fiscal balance from FY 2005 onwards;  
public debt to GDP less than 50%;  capital expe nditure more than 25% of the budget;  and debt 
service share less than 15% of the budget.31  Fiscal decentralization has progressed slower than 
initially planned (Chapter II).   
15. On the expenditure front, external debt service payments in proportion to export earnings 
have been falling (from 16% in 2003 to 8.3% in 2006 (Table I.1)) due,  inter alia , to the Government's 
policy of retiring expensive debt.  Additionally, g overnment disbursements were delayed as a result 
of, inter alia , slow expansion of public investments by the central government and state-owned 
enterprises, the closer monitoring of government  procurement processes, and a declining budget for 
the import-intensive projects as the baht appreciated.32  According to IMF data, the fiscal surplus has 
resulted in falling public debt as a percentage of GDP, from 51% in 2003 to 42% in 200633;  according 
to BOT data, total government dome stic and external debt (excludi ng IMF loan payments) followed a 
similar trend, declining from 27.6% of GDP to 25% (Table I.1). 
16. A large portion of the Government's expenditure  is off-budget, including provision of credit 
to SMEs, and housing projects for the poor.34  The cumulative cost of off-budget items between 2001 
and 2004 was estimated at 6% of GDP;  according to the authorities this is not a concern because most 
credit is commercial-based credit extended by specialized financial institutions. 
                                                      
 26 BOT online information on nominal  effective exchange rates and real effective exchange rates.  
Viewed at:  http://www.bot.or.th/BOTHomepage/D ataBank/Econcond/econind/Effective_Exchange/index_ 
eng_i.asp. 
27 A 30% non-interest-bearing reserve requirement was imposed on capital inflows.  If the 
reserve-associated funds were withdr awn within a year, only  two thirds of the reserve amount would be 
released, which was equivalent to a 10% tax. 
28 While trade- and service-related tr ansactions as well as FDI flows (excluding direct loans) were not 
subject to URR from the start, equity investment in flows (excluding mutual funds and warrants) in listed 
companies were exempt from the rest rictions as from 19 December 2006.  More URR exemptions have been 
available for loans (effective from 1 February 2007), de bt securities, mutual funds and property funds (effective 
from 15 March 2007) (BOT online information.  View ed at:  http://www.bot.or.th/fipcs/Documents/FOG/ 
2549/EngPDF/25490114.pdf and http://www.bot.or.th/fipcs/Documents/FOG/2550/EngPDF/25500013.pdf). 
29 The fiscal surplus (based on net operating balance figures) was 2.5% of GDP during 2004 and 3.4% 
during 2005, rising to 4.4% in 2006. 
30 World Bank (2006). 
31 Ministry of Finance (2005). 
 32 World Bank (2007). 
33 IMF data from IMF Public Information Notice (PIN) No. 07/39, 23 March 2007. 
34 Asian Development Bank (2005) and (2004). Thailand WT/TPR/S/191 
 Page 9 
 
 
(4) MAIN STRUCTURAL POLICY DEVELOPMENTS  
(i) Tax reform 
17. The objectives of Thailand's tax reform are to  reinforce the fiscal sustainability framework, 
incorporate environmental and social objectives, enhance the country's competitiveness, and stabilize 
the level of economic development.  Several initia tives were announced during the review period.  For 
instance in 2003, the authorities planned a broad ta x reform, which would enhance the efficiency of 
the tax system and support revenues.35  In 2005,  it was recognized that the tax reform should be 
undertaken within a framework of fisca l sustainability and four fiscal targets were set (section (3)(ii)).  
In 2005, the Government was formulating the Roadma p for Tax Reform with a view to broadening 
the tax base, increasing competitiveness, promoting so cial development, and increasing private sector 
participation.36  The structure of the corporate income tax, personal income tax, value-added tax, 
excise tax, and customs duties were to be reviewed .  No information on action resulting from these 
plans was available from the authorities (and access  to Fiscal Policy Office online information in 
English was not possible). 
18. During the period under review, Thailand reduced  certain tax rates and maintained numerous 
tax incentives in line with specific policy obj ectives (Chapter III), while trying to increase tax 
revenues through greater complianc e and better tax administration and collection.  Initiatives to 
modernize the tax administration, such as e-reve nue, e-excise, and e-customs appear to have 
facilitated taxpayers' dealings with the tax coll ecting agencies and helped reduce tax evasion and 
corruption by minimizing face-to-face contacts.     
(ii) Financial and capital markets reform 
19. The Government initiated a Financial Sector Market Master Plan in 2004 and a Capital 
Market Master Plan II, as well as Financial Sector Master Plan II in 2006 (Chapter IV).  These plans 
seek to, inter alia,  increase the depth of the financial and capital markets and make them more 
accessible through liberalization.  At the same tim e, the Government intends to put in place 
international best practices with regard to cor porate governance and supervision (Chapter III).  Legal 
reforms to enhance the efficiency and effectiven ess of the financial sector are making progress.  
Amendments to the Central Bank Act, the Securiti es and Exchange Commission Act and the Deposit 
Insurance Act to increase the autonomy of and m itigate political influence in regulatory agencies 
appear to have been approved by the Cabinet but need to be approved by the Council of State and the 
National Legislative Assembly to become effectiv e.  Additionally, new accounting standards (IAS39) 
and a capital adequacy framework (Basel II) are to  be implemented in 2 007 and 2008, respectively 
(Chapter IV).  These measures would improve pr ovisioning and thus strengt hen the banks' balance 
sheets. 
(iii) Privatization 
20. State intervention in the economy persists in certain activities (Chapters III and IV).  The 
privatization process, a contentious issue, has been slow:  there has been only nominal divestment in a 
small number of state-owned enterprises (SOEs).  According to April 2004 statements, the Government would maintain a 50% stake in all SO Es and a 75% holding in power and water utilities;  
thus, the State would remain the majority stakeholde r.  The planned privatization of the state-owned 
power company, Electricity Generating Authority of Thailand (EGAT), was suspended by the 
                                                     
 
35 IMF Public Information Notice (PIN) No. 03/119, 17 September 2003. 
36 Ministry of Finance (2005). WT/TPR/S/191 Trade Policy Review 
Page 10 
 
 
Supreme Administrative Court in 2006 (Chapter IV).   The Government aims to privatize ten SOEs 
between 2007 and 2009, depending  on the political situation. 
(iv) Labour 
21. Under the Labour Protection Act of 1998, employers must comply with minimum wage 
requirements for full-time permanent and part-time employees, thereby preventing employers from 
circumventing minimum wage obligations;  violati ons are considered criminal offences.  Where 
violations are found, a labour inspector must either issue to the employer a wa rning or a written order 
to comply with the law;  follow-up inspections are performed to ensure compliance.  In case of 
non-compliance, employees may submit a complaint to the labour inspector, or sue the employer 
directly in the Labour Court for any unpaid wages, s ubject to specific rates of interest and surcharge.  
The Social Security Scheme covers enterprises with  one or more workers.  At present, 8.9 million 
insured persons are covered by the Social Security Fund, which is financed by tripartite contributions 
(employers, employees, and the Government) and pr ovides sickness, maternity, invalidity, death, 
child allowance, old-age pension, and unemployment  benefits.  The old-age benefits were launched 
on 31 December 1998;  the retirement age (for insured persons) is 55 years.  The Social Security 
Office is to increase the old-age pension from 15% to 20% of the average wage of the last 60 months 
of employment of the insuree or 20% and 1.5%  per additional 12 months  of contribution above 
180 months.  The SSO will commence pension distribu tion in 2013.  According to the authorities, 
under the new pension rate, the result of actuarial projection showed that the fund will be sufficient 
for the next 50 years.  
22. According to a 2006 NSO survey, about 21.8 milli on persons are employed in the informal 
sector (equivalent to 61.5% of the total 35.5 million employed persons).  The agriculture and trading 
sectors account for 57.5% and 17.1% of employment in  the informal sector, respectively.  Measures to 
integrate the informal sector into the formal economy include the extension of social security 
coverage to establishments with less than ten em ployees since April 2002;  this measure led to a 
17.6% increase of the number of insured persons in 2002. 
(v) Governance 
23. Efforts to improve transparency have been  undertaken in several policy areas during the 
period under review, e.g. customs, taxation, an d government procurement (Chapters II and III).  
Issues relating to the transparency and accountability  of public administration as well as the proper 
management of public affairs ha ve an important impact on the economic environment and growth 
prospects.   
24. Corruption increases the cost of doing business and thus reduces competitiveness.  According 
to a 2007 World Bank report, Thailand has fallen b ack on several key governance indicators, except 
for that of control of corruption.37  According to the global corruption perceptions index calculated by 
Transparency International, Thailand's ranking improved from 70 in 2003 (out of 133 countries) to 
59 (out of 158 countries) in 2005 before dropping to 63 (out of 163 countries) in 200638, lower than 
that of some competing countries in the region.   The authorities indicate that the Corruption 
Perception Index (CPI) is measured mainly on percep tion.  In Thailand's view, changes in Thailand's 
ranking might be attributed to, inter alia , reporting on corruption in the former Government (i.e. in 
                                                      
37 The report displays the country's performance for all available years between 1996 and 2006 in 
six governance dimensions:  (i) voice and accountability, (ii) political stability and lack of violence/terrorism, 
(iii) government effectiveness, (iv) regulatory quality, (v ) rule of law, and (vi) control of corruption (Kaufmann 
et al, 2007. 
 38 Transparency International (2006). Thailand WT/TPR/S/191 
 Page 11 
 
 
buying the Computer Tomography X-Ray machines for the new airport), increase in the number of 
countries ranked, and political instability. 
25. Despite long-standing efforts, corruption remain s significant, both in the private and public 
sectors;  it is often encountered in connection w ith government procurement, customs, and other 
business transactions.39  Thailand's legal system is considered  relatively weak, and the abrogated 1997 
Constitution (Chapter II) constituted a serious attempt to strengthen judicial awareness.  The National 
Counter Corruption Commission (NCCC), the main c oordinator of anti-corruption measures, received 
852 complaints about corruption in local government in  2003.  However, investigations are very slow, 
and few officials have been punished so far.  The Anti-Money Laundering Office (AMLO), under the 
Ministry of Justice, has continued to work to  enhance the effectiveness of law enforcement and 
related implementation.  Since August 1999,  the Transaction Committee, chaired by the Secretary-
General of the Anti-Money Laundering Board, has been authorized to sei ze or freeze assets when 
there is evidence of corruption.  Enforcement has improved since 2003:  the Transaction Committee has ordered the seizure or freezing of assets wort h more than B 249 million in connection with 
16 cases of corruption.  Thailand has taken the firs t steps towards implementing more e-government 
(Chapter II), but this is not well developed.  E-au ctions and e-procurement have been used for public 
projects (Chapter III).  The current Government runs  an anti-corruption campaign aimed, in particular, 
at high-ranking decision-makers and bureaucrats. 
(5) B
ALANCE -OF-PAYMENTS DEVELOPMENTS  
(i) Current and trade accounts 
26. The current account posted a surplus in ea ch year of the review period except 2005 
(Table I.3)40;  nevertheless, in relation to GDP it declined  from 3.3% in 2003 to 1.5% in 2006.  The 
current account balance reflects the difference be tween gross national savings and gross domestic 
investment.  Private and public investment has b een sluggish during the period as corporations have 
still not recovered fully from the 1997 crisis.  Public investment increased in 2005, partly due to the 
initiation of mega-infrastructure projects (section (4)(iv) and Chapter III);  private investment also 
rose.  At the same time, rising household incom es resulted in increased savings.  Continued capital 
inflows coupled with a current account surplus led to a rise in international reserves from 
US$42 billion in 2003 to US$67 billion in 2006 (T able I.1), and US$71 billion in March 2007, 
accounting for 344% (as of March 2007) of short- term external debt and covering more than 
6.7 months of merchandise imports;  this c onsiderably reduces external vulnerability.41   
                                                      
39 An estimate made by the National Counter Co rruption Commission calculate s that up to 30% of 
government procurement budgets vanish because of corrupt practices.  The National Institute of Development Administration reported that 95 mega-projects cost the st ate B 400 billion (Chapter III), solely due to corruption, 
within the last five and a half years.  It was also found that 79% of all businesses had to bribe officials in order 
to obtain the desired service or to obtain a contract.  Bribery costs were estimated to add 20% to the overall costs of a contract (Business Anti-Corruption online information.  Viewed a t:  http://www.business-anti-
corruption.com/normal.asp?pageid=241). 
40 In 2005, the current account recorded a deficit of 4.4% of GDP. 
41 Bank of Thailand and World Bank (2007). WT/TPR/S/191 Trade Policy Review 
Page 12 
 
 
Table I.3 
Balance of payments, 2002-06 
(US$ million) 
   2002 2003 2004 2005a 2006a 
Current account 4,685.0 4,784.0 2,767.0 -7,852.2 3,240.5 
Goods and services balance 7, 746.0 8,821.0 6,754.0 -3,735.2 6,902.3 
Trade balance 2,739.0 3,759.0 1,460.0 -8,529.6 2,244.7 
Exports (f.o.b.) 66,092.0 78,105.0 94,941.0 109,192.8 128,219.9 
Imports (c.i.f.) 63,353.0 74,346.0 93,481.0 117,722.4 125,975.2 
Services balance 5,007.0 5,062.0 5,294.0 4,794.4 4,657.6 
Receipts 15,391.0 15,801.0 19,050.0 20,165. 1 24,098.7 
Travel 7,902.0 7,855.0 10,057.0 9,576.2 12,441.0 
Transportation 3,264.0 3,505.0 4,349.0 4,626.5 5,269.0 
Payments 10,384.0 10,739.0 13,756.0 15,370.6 19,441.1 
Travel 3,303.0 2,921.0 4,516.0 3,803.3 4,633.7 
Transportation 1,419.0 1,792.0 2,441.0 3,965.3 4,583.2 
Income -3,664.0 -4,978.0 -6,121.0 -7,120.3 -7,037.2 
Credit 3,419.0 3,152.0 3,247.0 3,641.5 4,748.9 
Investment income 2,039.0 1,544.0 1,624.0 2,454.4 3,415.5 
Compensation of employees 1,380.0 1,608.0 1,623.0 1,187.0 1,333.4 
Debitb 7,083.0 8,130.0 9,368.0 10,761.8 11,786.1 
Income on equity 4,692.0 6,260.0 7,676.0 9,242.8 9,733.2 
Income on debt 2,391.0 1,870.0 1,692.0 1,519.0 2,052.9 
Current transfers (net) 603.0 941.0 2,134.0 3,003.3 3,375.4 
Capital and fina ncial account -1,845.0 -4,759.0 3,628.0 12,558.0 8,866.3 
Direct investment 3,164.0 4,614.0 5,786.0 8,405.2 8,960.5 
In Thailand 3,335.0 5,235.0 5,862.0 8,957.0 9,750.7 
Abroad -171.0 -621.0 -76.0 -551.8 -790.2 
Portfolio investment -1,606.0 -73.0 3,071.0 6,122.8 4,462.9 
Assets -903.0 -942.0 1,199.0 -1,460.9 -1,712.3 
Liabilities -703.0 869.0 1,872.0 7,583. 7 6,175.2 
Other investment -3,403.0 -9,300.0 -5,229.0 -1,970.0 -4,557.1 
Assets 2,829.0 -65.0 -1,698.0 -1,307.4 -9,337.4 
Liabilities -6,232.0 -9,235. 0 -3,531.0 - 662.6 4,780.3 
Loans -10,300.0 -10,488.0 -2,269.0 -3,325.7 2,896.8 
Net errors and omission 1,394.0 118.0 -660.0 716.5 634.8 
Overall balance of payments 4,234.0 143.0 5,735.0 5,422.3 12,741.6 
a Provisional. 
b Investment income only.  
Source:  Bank of Thailand (2006), Economic Data:  Table 53.1. 
(ii) External liabilities 
27. Following the repayment of the IMF loan ahead of schedule (section (3)(ii)), the ratio of 
external debt to GDP fell from over 40% in 2003 to 33.1% in 200642, while the debt service ratio also 
declined from 16% to 8.3% (Table I.1).   
                                                      
42 Data provided by the Bank of Thailand are base d on a three-year moving average GDP, in line with 
the World Bank methodology. Thailand WT/TPR/S/191 
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(6) DEVELOPMENTS IN MERCHANDISE TRADE  
28. During the review period, the ratio of Thailand' s total trade (exports and imports) in goods 
and non-factor-services to GDP followed an upward tr end (from 124.6% in 2003 to 143.5% in 2006), 
reflecting the increased openness of the Thai eco nomy as well as the importance of foreign trade 
(Table I.1).  
(i) Composition of trade 
29. Manufactured exports still account for more than  three fourths of Thailand's total exports 
(Chart I.1 and Table AI.1).  Their share in tota l exports increased during the period under review, 
driven mainly by a surge in export value, as we ll as strong global demand.  However, agricultural 
exports contracted, due mainly to the lower domestic  supply caused by the drought and bird flu, but 
strong agricultural commodity prices mitigated some  of the impact.  Manufactured items represent 
two thirds of total imports (Table AI.2).  Import grow th was fuelled by the hike in oil prices, increased 
imports of iron and steel due to the temporary cl osing of large local steel producers (Chapters III 
and IV), the inventory build-up, increased dome stic demand on account of mega projects, and 
increased construction activity.43 
30. According to estimates by the Intelligence Divisi on/Investigation and Suppression Bureau of 
the Customs Department, the value of smuggled  merchandise dropped from B 2.5 billion to 
B 1.3 billion between 2002 and 2006.  No further in formation, e.g. on the t ype of smuggled goods and 
their origin, was available from the authorities.   
(ii) Direction of trade 
31. There has been a marked shift in Thailand's tr ade destinations during the period under review;  
most Asian economies have gained at the expense of the EC-25 and the United States (Chart I.2, 
Table AI.3 and Table AI.4).  However, the Unite d States, the EC-25, and Japan remain Thailand's 
largest export markets.  With regard to imports, Japan remains Thailand's largest source;  China has 
overtaken both the EC-25 and the United States.  As a result of the rising oil prices, the share of goods 
from the Middle East has also increased. 
32. Thailand's trade with its FTA pa rtners (including ASEAN) during or prior to the period under 
review has grown faster than trade with th e rest of the world (Tables AI.3 and AI.4)44, suggesting that 
these agreements may have resulted in trade diversi on due to vertical integration in the region.  
Between 2002 and 2006, trade (im ports and exports) with these pa rtners rose by 133.0%, compared 
with an overall growth rate of 95.2% with all trad ing partners;  imports grew slightly faster than 
exports.  During the same period, Thailand's trade (imports and exports) with  other ASEAN partners 
grew by 106.3%, with imports growing faster than exports.  
  
 
 
                                                     
 
43 According to the UNSD Comtrade data, the share of crude fuels as a percentage of total imports rose 
from 8.5% in 2002 to 14.3% in 2005 and 15.6% in 2006, while the share of iron and steel imports increased 
from 5.0% to 7.4% and 6.1% over the same period.  
44 UNSD Comtrade data.  Calculations include bilateral trade with Australia, ASEAN partners, 
Bahrain, China, India, New Zealand, and Peru (Chapter II). WT/TPR/S/191 Trade Policy Review 
Page 14 
 
 
Chart I.1
Composition of merchandise trade, 2002 and 2006
2002 2006
(a)    Exports (f.o.b.)
Other 
consumer goods  
9.4
Manufactures
74.6
Total:   US$68.1 billion Total:  US$130.6 billion  
(b)    Imports (c.i.f.)
Iron & steel
5.0
Chemicals
11.2Transport equipment  
5.9
Manufactures
75.6
Office machines &
telecom equip.   
21.3Other electrical
machines  
6.8
Non-electrical 
machinery
10.1Textiles & clothing 
2.6
Other mining
3.0Fuels
11.6
Non-electrical
machinery
9.1Other
2.5
Other electrical 
machines
5.9Non-electrical
 machinery
5.6
Other semi-manuf.   
6.3Transport equipment  
5.2
Chemicals
10.3Manufactures
66.8Office machines &
telecom equip.  
16.2
Total:   US$64.6 billion Total:   US$128.6 billion Per cent
Manufactures
75.3Other electrical
machines
6.3Other agriulture
5.3
Other electrical
 machines
6.8
Other consumer goods  
5.9
Other
2.0Food
11.2
Mining
3.8
Office machines & 
telecom equipment
24.9Other
1.7
Other semi-
manufactures
 9.4Mining
6.5Agriculture
16.5
Non-electrical machinery
5.5
Source :  UNSD, Comtrade database (SITC Rev.3).Other consumer goods 
5.4
Mining
25.0Other 
consumer goods 
7.7
Transport 
equipment
10.3
Other semi-
manufactures
 8.7
Other semi-manufactures
7.3Other agriculture
3.7Food
14.6
Agriculture
5.7Agriculture
7.7
Mining
14.6
Iron & steel
6.1Transport 
equipment
5.3
Office machines & 
telecom equipment
22.5Chemicals  
6.1Chemicals  
8.0Other 
3.4
Textiles  & clothing 
1.8
Other mining
5.1Fuels
19.9Textiles & clothing
5.5Textiles & clothing
7.9
Agriculture
18.3
 Thailand WT/TPR/S/191 
 Page 15 
 
 
Chart I.2
Direction of merchandise trade, 2002 and 2006
2002 2006
(a)    Exports (f.o.b.)
Other Asia  
14.8
Asia
54.7
Total:   US$68.1 billion Total:  US$130.6 billion
(b)    Imports (c.i.f.)
Other Asia  
9.4
EC25
11.3United States
9.6
EC25
8.7
China
10.6 Australia  2.7
Singapore 
4.5United States
6.7
Total:   US$64.6 billion Total:   US$128.6 billionPer cent
Asia
59.4Other Asia  
17.3
Middle East
4.0
Japan
14.6
Other Middle 
East  5.4Korea, Rep. of
4.0
Chinese Taipei
4.5United States
19.8
Singapore
8.1
Other Asia  
8.9United States
15.0
Source :  UNSD, Comtrade database (SITC Rev.3).Japan
20.1EC25
13.9
Middle East
3.4
Asia
64.1Asia
63.2
Japan
23.0Australia  2.4EC25
15.5Hong Kong, China  
5.4
Japan
12.7Other America
3.2
Malaysia
6.6Australia
2.4
Hong Kong, China  
5.5
Singapore
4.5China
5.2Australia
3.3
Korea, Rep. of   
3.9Other
4.4
Indonesia  2.6 Indonesia  2.3Malaysia
5.1Other America
2.8
Africa  2.1
China
9.0Africa  2.6
Other America
2.2Other America
1.8
China
7.6Malaysia
 5.6Malaysia
4.2
Chinese Taipei
4.0Other   
2.0Other 
1.6
Singapore
6.5
Other
4.9
Middle E.
8.8Middle East
14.3U.A.E  2.2
Saudi Arabia  1.9U.A.E.
5.6
Other Middle East
4.7Saudi Arabia
3.3
 WT/TPR/S/191 Trade Policy Review 
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(7) TRENDS AND PATTERNS IN FOREIGN INVESTMENT  
33. Despite adverse conditions during the review period, the SARS threat in 2003, ongoing 
political unrest in southern provinces, the impact of  the tsunami in 2004, political uncertainty, high oil 
prices, rising inflation and interest rates), annual net FDI inflows grew by more than 86%, from US$11.5 billion in 2003 to US$21.4 billion in 2006 (Table I.4).  Manufacturing remained the largest recipient followed by the trade sector, non-bank investment, and real estate activities.  In 2006, increases in FDI were mainly due to recapitalizati on in the telecommunications and the iron and steel 
industries;  FDI into the non-bank investment sector also increased significantly;  in the trading sector, 
the majority of FDI had gone to the petroleum bus inesses, while the flows into the real estate sectors 
were as high as those into the trading sector.  Singapo re is the largest overseas investor, followed by 
Japan, the EC-25, and the United States (Table I.4) .  The recent free-trade area agreement with Japan 
is a positive development for future FDI flows (Chapter II). 
34. According to recent surveys, Thailand's investme nt climate has remained generally favourable 
and the country is still ranked ahead of other comp etitors, but some economies in the region seem to 
be catching up quickly.
45  Reportedly, the investment climate could be strengthened if improvements 
were made in the areas of regulatory burden, sk ills shortages, and infrastructure (Chapter II).46  
According to a 2005 study by the Thailand Devel opment Research Institute, skills shortages, 
especially in English and Information Technology seem particularly acute and are to worsen by 
2009.47  Furthermore, current political uncertainty a nd expected changes in the Foreign Business Act 
in 200748 (Chapter II) have affected confidence, as Board of Investment approvals of foreign 
investments decreased by 18% in 2006, tr anslating into lower investments in 2007.49 
Table I.4 
Inflows of foreign direct investment, 2002-06 
(US$ million)  
  2002 2003 2004 2005a 2006a 
Total inflows (US$ million) 10,518.0 11,504.0 13,419.0 15,311.6 21,446.8 
 Per cent of total 
(a) Inflows by origin      
United States 9.0 7.6 11.3 9.8 8.0 
EC25 15.3 12.4 13.1 11.7 13.2 
United Kingdom 3.4 2.4 3.3 2.7 2.7 
Germany 1.7 2.0 2.7 3.1 5.1 
Switzerland 0.8 1.4 1.4 2.2 1.9 
ASEAN 40.4 38.3 28.9 16.2 37.8 
Singapore 40.1 37.1 26.2 15.3 36.7 
Malaysia 0.1 1.0 1.2 0.6 1.0 
Japan 25.4 28.3 29.3 23.9 19.7 
Table I.4 (cont'd) 
                                                      
45 Several surveys in 2006, including those conducted by the United Nations Industrial Development 
Organisation and the Japan External Tr ade Organisation, place Thailand in th e top ranks of FDI destinations.  
The World Bank's 2006 survey on the ease of doing business positions Thailand 18th (out of 175 countries and 
territories), one place higher than in 2005.  The country scored well on star ting a business, dealing with licences, 
and registering property, but scored poorly on trading across borders and taxation (EIU, 2006b). 
46 World Bank (2005b), "Thailand Productivity and Investment Climate Study". 
47 EIU (2006b). 
48 The Act may require Thais to have majority voting rights; the condition could apply retroactively 
(Chapter II).  
49 World Bank (2007) and (2006c). Thailand WT/TPR/S/191 
 Page 17 
 
 
  2002 2003 2004 2005a 2006a 
Hong Kong, China 2.4 6.5 6.6 3.3 3.4 
Chinese Taipei 1.2 1.0 1.4 1.1 0.8 
Korea, Rep. of 0.9 0.3 0.9 0.5 0.4 
China 0.2 0.2 0.1 0.1 0.1 
Canada 0.2 0.2 0.2 0.2 0.2 
Australia 0.5 0.5 1.0 0.4 0.5 
Other 3.6 3.2 5.8 30.5 14.1 
(b) Inflows by sector      
Agriculture 0.1 0.3 0.2 0.0 0.0 
Mining and quarrying 4.5 4.0 3.0 1.6 1.6 
Manufacturing 36.0 36.4 45.2 35.4 33.0 
Food and sugar  1.4 2.6 3.0 1.3 1.2 
Textiles 0.6 0.8 0.6 0.9 0.6 
Metal and non-metallic 4.9 4.0 4.2 2.5 2.6 
Electrical appliances 10.9 9.4 11.2 7.2 6.8 
Machinery and transport equipment 7.9 9.9 13.0 11.1 9.6 
Chemicals 4.8 3.4 4.1 3.6 2.9 
Petroleum products 0.6 1.0 3.8 2.4 2.2 
Construction materials 0.3 0.4 0.3 0.1 0.0 
Other 4.6 4.9 4.9 6.4 7.1 
Construction 0.4 0.6 0.9 0.5 0.4 
Trade 38.3 34.7 30.5 14.8 26.7 
Financial institutions 3.9 3.8 4.6 10.3 6.8 
Investment  0.5 5.0 2.9 2.9 11.7 
Real estate 1.4 2.3 1.7 7.4 8.3 
Other services 9.9 6.1 4.3 3.5 4.4 
Other 5.1 6.9 6.8 23.6 7.2 
a Provisional. 
Note: Figures cover investme nt in non-bank sectors only.  
Source: Data provided by the authorities. 
35. FDI outflows increased by 73.4% during the period under review (Table I.5), directed mainly 
towards trading, manufacturing, mining, and non-bank investment.  Singapore was the largest 
destination for outflows, followed by the EC-25, Japan, and the United States. 
Table I.5 
Outflows of foreign direct investment, 2002-06 
(US$ million)  
   2002 2003 2004 2005a 2006a 
Total outflows (US$ million) 7,107.00 6,339.00 8,463.00 7,899.47 10,991.05 
 Per cent of total 
(a) Outflows by destination      
United States 10.8 8.5 11.5 15.5 8.1 
Canada 0.0 0.0 0.0 0.2 0.2 
EC25 25.7 12.8 12.5 10.2 12.5 
Netherlands 17.3 1.3 4.0 2.2 5.8 
Table I.5 (cont'd) WT/TPR/S/191 Trade Policy Review 
Page 18 
 
 
   2002 2003 2004 2005a 2006a 
Germany 1.6 0.4 1.0 0.8 3.7 
United Kingdom 1.4 4.1 2.0 4.5 1.0 
Switzerland 0.5 0.6 0.2 1.5 0.5 
ASEAN 40.0 52.8 37.6 21.7 48.1 
Singapore 39.3 51.6 37.5 20.9 47.4 
Malaysia 0.6 1.1 0.1 0.5 0.5 
Japan 10.9 15.1 14.0 9.0 10.1 
Hong Kong, China 2.3 2.2 8.8 1.8 3.0 
Chinese Taipei 0.4 0.7 0.7 0.2 0.2 
Korea, Rep. of 0.1 0.2 0.3 0.4 0.3 
China 0.0 0.1 0.2 0.2 0.1 
Australia 0.7 0.4 0.5 0.4 0.3 
Other 8.5 6.6 13.7 38.9 16.6 
(b) Outflows by sector      
Agriculture 0.0 0.1 0.2 0.0 0.0 
Mining and quarrying 4.6 3.1 2.4 10.2 8.1 
Manufacturing 27.4 28.0 26.9 16.4 21.9 
Food and sugar  1.8 0.5 0.8 2.6 2.3 
Textiles 0.3 0.4 0.5 0.6 0.3 
Metal and non-metallic 3.6 3.3 1.1 1.6 1.6 
Electrical appliances 13.0 11.9 8.3 3.1 3.8 
Machinery and transport equipment 2.6 7.7 5.5 2.4 3.6 
Chemicals 2.4 1.4 1.9 1.1 1.5 
Petroleum products 1.6 0.3 5.7 0.2 1.1 
Construction materials 0.0 0.8 0.0 0.0 0.0 
Other 1.9 1.6 3.0 4.7 7.7 
Construction 0.4 0.4 0.6 0.4 0.4 
Trade 47.0 50.0 46.3 24.6 43.7 
Financial institutions 4.9 7.2 4.7 11.6 6.7 
Investment  9.9 3.1 7.4 3.4 7.0 
Real estate 1.1 2.1 6.7 0.8 1.1 
Other services 4.2 5.4 3.2 4.3 2.6 
Other 0.5 0.7 1.6 28.2 8.5 
a Provisional.  
Note: Figures cover investme nt in non-bank sectors only. 
Source: Data provided by the authorities. 
 
(8) OUTLOOK  
36. By and large, Thailand's economic fundamentals remain good.50  In the short term, the main 
economic policy challenges are to support domestic demand and rebuild investor confidence, and to 
move forward with structural reforms.  Meeting these challenges would entail supportive macroeconomic policies and addressing investor c oncerns regarding Thailand's openness to foreign 
investment.  The Tenth Development Plan (2007-20 11) sets economic targets at no less than 3% for 
total factor productivity growth,  no more than 2% unemployment, no more than 4% inflation, a 
                                                     
 
50 IMF Public Information Notice (PIN) No. 07/39, 23 March 2007. Thailand WT/TPR/S/191 
 Page 19 
 
 
current account deficit of no more than 2% of GDP, sav ings rate of 35% of GDP, and public debt at 
no more than 50% of GDP.51  Furthermore, the Government has set a target of further reducing 
poverty in 2011.52  If achieved, these targets would sustain real GDP growth at 6%53, and help the 
economy to become more competitive and produc tive.  Total factor productivity growth in 
manufacturing and services would require more dom estic innovation and technological advancement 
in these sectors.  According to observers, the leading drivers of GDP growth would be a moderate pickup in public investment, somewhat better pe rformance in agriculture, robust exports, and a 
continuing revival of the tourism industry from the setback of the tsunami.
54  Although the 
appreciation of the baht does not seem to have a dversely affected exports overall (as currencies of 
competitors also appreciated during the period), fu rther upward pressure on the baht may do so in the 
future, if not mitigated by impr oved total factor productivity. 
                                                      
51 Board of Investment (2006). 
 52 World Bank (2007). 
53 World Bank (2006c). 
54 Asian Development Bank (2006).